The Money Files

A blog that looks at all aspects of project and program finances from budgets and accounting to getting a pay rise and managing contracts.

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Recent Posts

The Cost of Hiring a New Team Member

The Danger of Fictional Benefits

5 Steps For A Configuration Management Process

5 Considerations for Your Project Procurement Strategy

What Does Quality Cost?

The Cost of Hiring a New Team Member

Categories: interviews, video

In this video I talk about the costs of hiring a new employee. There are a lot of elements involved in hiring and they are all an investment!


Posted on: October 24, 2016 04:08 PM | Permalink | Comments (0)

The Danger of Fictional Benefits

Categories: pmi

Steve Jenner gave a presentation at the PMI Power Talks recently – a set of TED-style short presentations hosted in the centre of London by the PMI UK Chapter. He spoke about portfolio management and benefits.

Benefits, he explained, are not just one dimension of project portfolio management. They are the rationale for the investment of shareholders’ funds.

Often, he said, benefits are used as the way to justify the project. He pointed out that isn’t correct: benefits are the rationale for the project. We “go looking for benefits to justify what we want to do anyway,” he said.

Then people are surprised that they didn’t realise the predicted benefits. How could the project have done that? The benefits were made up anyway.

“Strategic alignment means nothing,” he went on to say. You can align anything with anything. Anything can be aligned up front. It’s what happens later that matters. Strategic contribution, he said, is where it’s at.

When you can’t justify a project by any other means, people call them “strategic projects”.

So how do you get round the problem of fictional benefits?

Don’t treat all projects the same way

Steve explained that it’s foolish to treat all projects the same way. Tailor the investment criteria: don’t try to rank and assess projects that relate to keeping the business functioning in the same way that you would innovation projects.

If you are investing to save money or increase revenue then it makes sense to do a cost benefit analysis.

If you’re doing it to make a strategic contribution, then benefits aren’t always clear in cost terms.

For projects that are mandatory, there is only one question that matters: Do we really have to do it? If it’s a $200m mandatory project with justifiable benefits of $300m and the project cost goes up, then we won’t worry if it now costs $250m. But if we are doing the project to be cost effective, and it isn’t really mandatory, then the cost increase matters. A lot.

Avoiding Fictional Benefits

Here are some tips that Steve gave for making sure your projects are adequately justified.

1. Be clear about the benefits you are buying

Financial benefits can be cash releasing: you can use the money elsewhere for other things, or non-cash releasing: they save money but you can’t actually access the money.

An example of that latter category would be things like process improvements that might shave a minute off a process. You aren’t going to make a staff saving on that. Saving staff time is only a benefit if you do something with it, so Steve argued that these aren’t real benefits at all.

2. Link gate reviews to funding

If your project gate reviews – the steps you go through at the end of each project stage to validate that it’s OK to move to the next point in the project – are not linked to funding or project performance then they don’t serve a purpose.

All they’ll do is just slow projects down and add bureaucracy. Unless they are meetings and project reviews with teeth i.e. that they can stop your project, what’s the point? Your portfolio, Steve said, should be a funnel not a tunnel. In other words, you need to be stopping projects, or delaying funding, and taking those hard decisions because that’s your job and how you protect the funding.

3. Expect improvement

This was an interesting point: expect things to get better and they will. Create a culture where project improvement is expected. Where project control is expected. Where generally you just expect things to be better week on week, year on year. And don’t let lack of improvement go unnoticed.

I’m looking forward to the next PMI Power Talks: I think the quality of speakers was exceptional and it was a really well-organised event. This session by Steve was very thought-provoking.

Posted on: October 16, 2016 11:59 PM | Permalink | Comments (3)

5 Steps For A Configuration Management Process

Categories: config management

Ah, configuration management! I confess that this wasn’t the most exciting of topics to study when I was preparing for my APMP exam recently but it is important if you want to keep your project organised. Here’s a refresher on how to do it.

First, Plan

Configuration management begins at the beginning of the project when you’re putting together you project management plan. Your configuration management plan is part of the project management plan (hopefully a relatively small and easy part, but not one that should be overlooked).

The config management process and approach is documented so that everyone knows what is happening and what is expected.

You’ll get your config approach approved by whoever needs to approve it – probably your Project Management Office. Show it to your project sponsor and they might not know what you are talking about; it’s one of the more ‘technical’ and jargon-laden parts of the job.

Next, Identify Config Items

Each item that needs configuration management is given a unique identifier so it can be tracked. Use the product breakdown structure if you have one because that’s already numbered and it saves you a job. Config items relate to project requirements. They can include:

  • Project documents
  • Products – physical and virtual
  • Anything that is going to be created or changed
  • Anything that requires limited access by only a few people for security or safety reasons.

You can prepare your traceability matrix at this point too.

The project manager is ultimately responsible for configuration management on the project but maintaining the traceability matrix and version control for the items can be done by someone else: your project support person or Project Management Office team maybe.

Control Your Records

Configuration records need to be tightly controlled to ensure there is a full audit trail between the original requirement and the final version.

This is done through version control. That’s not just version numbering on documents and making sure that others are locked out while you are editing them, but also physical security of the project’s assets.

This part of the process links closely to your change control process.

Status Accounting

Status accounting is a term that doesn’t mean much outside of the world of config management – at least to me.

All it means is that you can see the status of any item whenever you want. That’s why your traceability matrix is important.

You should be able to see that an item is Open, Closed, In Progress, Checked Out (and to whom) or any other status that you’ve decided to give it.

Every time the item is changed or being worked on, the matrix should be updated so that it’s clear what is happening to the item. Then the latest version is logged too, so that you can always refer to the current version.

Finally, Audit

Configuration items are audited at their final point in the process to ensure that what was delivered meetings the original requirements, regardless of the iterations along the way.

Audits are done by an independent party outside of the immediate project team. This could be project assurance or an external body like the health and safety executive of the local council.

Generally this happens at the end of the project when you are closing it down and handing the deliverables over to the customer. Before it happens it’s wise to do your own checks so that you can be confident what the auditors will find!

That’s a quick tour through the project configuration management process. It helps you stay on top of a multitude of deliverables and ensures people don’t change things that they shouldn’t have access to, or without the knowledge of others.

It’s a good habit to get into but hopefully once you have written one config management plan you can use that as a template for future projects and you won’t have to write any more from scratch!

Posted on: October 09, 2016 11:59 PM | Permalink | Comments (3)

5 Considerations for Your Project Procurement Strategy

Categories: procurement

A project procurement strategy is drawn up at the very beginning of a project at a high level because it’s useful for the business case.

Then you’ll put together a more detailed level procurement plan during Definition, when you are specifying exactly what is going to happen on the project. The procurement plan is part of your overall project management plan (remember: your plan is more than the schedule alone).

Here are 5 things to take into account when you are putting your procurement approach together.

1. Make or Buy

Make or buy decisions happen all the time on projects because you need to get your hands on stuff to make your project happen.

A make or buy decision is where you decide whether the deliverables will be made in-house or bought in. For example, you might do some IT developments in-house as you have developers with  those skills, and then buy in Software-as-a-Service products for other software items where you don’t have the skills (or the inclination) to build them yourself.

‘Make’ is a good choice where you have internal capacity, resources, time and funding and a as way of building expertise in the team for long term support.

‘Buy’ can be more expensive but is also normally faster and does not require the project manager to recruit or backfill specialist permanent roles.

Do you want more tips for make or buy decisions? This video sets out 5 steps to consider.

2. Single or Multiple Suppliers

You also have to decide if you want a main contractor or are prepared to manage multiple suppliers.

Using a single supplier streamlines communication and devolves the project management requirement to the lead contractor. But it can cost more as it introduces another layer or management and there may be disputes.

Also: watch out for communication problems as your message might be lost or diluted as it is passed down.

Multiple suppliers are common on projects because there are often a variety of deliverables. It might make sense to group these together under a lead contractor – it often does on construction projects, for example – but it is going to really depend on your project and the type of suppliers you have.

3. Method of Reimbursement

You should think about what method of reimbursement you are going to use on your project and this might be mandated by your finance team or company policy. It’s really about the types of contract you are prepared to enter into: cost plus, cost, fixed price, firm price and so on.

Think about how much of your costs should be fixed and how much you are prepared to have as variable. The legal team are likely to get involved here to offer advice as you write your strategy. It’s not something that you can decide alone, although you might be in a position to make a recommendation. However, it’s important that you know what you are authorised to offer to a vendor, so it’s best to be clear at the beginning.

4. Supplier Selection

This involves:

  • Looking at where you are going to find qualified suppliers
  • What your minimum criteria are (useful for the pre-qualification questionnaire)
  • How you will rank suppliers
  • The process for tendering
  • Relevant internal policies

Think it through, take advice and then document your approach in your procurement strategy. You may already have this process for supplier selection formalised as part of your company policies, so there might not be much to do here except reference the existing procurement process. Check before you invent a supplier selection approach from scratch!

5. Contract conditions

Finally, contract conditions are worth covering in your strategy. You’ll need to ensure that your contract meets company standards and has a signatory at the appropriate level of authority. Your Finance team can advise on this.

Review any specifications that must be included like a break clause, intellectual property clause or force majeure.

What else would you consider in your procurement strategy? Let us know in the comments below.

Posted on: October 04, 2016 03:20 PM | Permalink | Comments (4)

What Does Quality Cost?

Cost of Quality

Recently there has been a discussion about which areas of the PMBOK® Guide are hardest to learn. Quality came up a few times: in my view that’s because the quality management techniques are not often put into practice.

On a training course I did recently, one of the delegates from a construction background felt that it was all second-nature, but others in the group had very little experience of quality techniques because the industries they worked in didn’t require the same focus on a quality outcome. It’s not that they didn’t care about quality, it’s just that it manifested itself in a different way in their jobs and they took a different approach to getting there.

So today I’m going to talk about one of the aspects of quality management: the cost of quality.

What Makes Up The Cost of Quality?

The cost of quality is made up of two things:

  • Cost of conformance
  • Cost of non-conformance.

Let’s look at each of those.

The Cost of Conformance

The cost of conformance is all about the work you put in to get a quality result. It’s the time and effort taken to ensure that the outcome is what you would expect and what meets your quality targets.

It is made up of things like:

  • Training courses: both the cost of doing the course and paying the trainer etc and the time involved in putting people through the course.
  • Documentation: the time taken to write it and the cost of getting it printed (or, more likely, your websites amended to put the documentation online)
  • Verification and validation: any verification and validation activities you do to verify the deliverables against your quality plan.
  • Testing: the cost of testers or testing tools, plus the time taken to go through a full testing cycle.
  • Audits: if you are subject to formal quality audits, they take time and effort too.
  • Internal reviews: if you don’t have formal quality audits planned then you probably have informal reviews in your schedule. These also take time.

These activities cost money, and you pay out the money in the hope that the project’s deliverables will be better quality and that they will be used in the best possible way. The time and money spent on the cost of conformance is what you hope drives the best business value from your deliverables.

The Cost of Non-Conformance

Not working with quality in mind also costs money. Money drains through your contingency budget if you aren’t careful because not delivering things right first time takes its toll on your cost management and your project schedule.

For example:

  • Scrap: if you have to throw away deliverables and start again, that is wasted money and time.
  • Rework: equally, if you have to go back and polish deliverables because they weren’t right first time, that also costs money and time.
  • Complaint handling: unhappy stakeholders take time to talk round. You might also find your project funding baskets of fruit or something similar to apologise to people. It happens, but it costs money (and time).
  • Product recalls: you’ll see this in the press every so often, like the Toyota recall of cars with faulty airbags or the new tumble dryer we needed as our last one was recalled. The effort in managing a product recall, plus the cost of the negative publicity, is massive. You don’t want your project to be associated with that. Note that this cost may well come a while after your project is formally closed, but it’s still a cost to the company for a job that wasn’t done to the right quality standards.
  • Lost future business: let’s not forget that the cost of getting something wrong, even if you then do put it right, could be that the client doesn’t want to work with you again. That’s lost business and while it’s hard to put a financial figure on it you could if it results in them cancelling an existing contract.

On Balance…

So, getting to ‘quality’ can cost you from various aspects. Is it worth it? Absolutely. In fact, it’s more likely that the potential cost of non-conformance will far outweigh the cost of putting quality measures in place and following through on them.

Whether you currently do a formal quality plan or not, it’s a good idea to take a few minutes to work out whether the cost of quality is something that is being taken seriously by your project team at the moment. If not, what are you going to do about it to improve the quality culture and schedule in some cost of conformance tasks to give yourselves a better chance of success?

Posted on: September 19, 2016 12:00 AM | Permalink | Comments (5)

"I once took a cab to a drive-in. The movie cost me $190."

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